Recession
Holds upElectricity demand barely moves in a recession. Utilities keep their dividends and tend to outperform when other sectors crash.
Utilities outperformed the S&P 500 in 2008, 2001, and 2020.
Business
Utilities
Regulated electric and water companies — boring on purpose, paying steady dividends for a century.
At a glance
US utility industry size
≈ $500B / yr
Biggest US utility
NextEra · ~$140B mkt cap
Typical dividend yield
≈ 3-4%
Allowed return on equity
Usually 9-10%
Step 1
What this business actually is
Utilities deliver electricity, natural gas, and water to homes and businesses. In most places they're regulated monopolies — one company gets to serve a city, and a state board approves the prices they can charge.
It's not a competitive industry in the normal sense. The trade-off is that profits are capped, but they're also extremely predictable. You always know roughly how much a utility will earn next year.
⚡
Regulated. Predictable. Slow.
Step 2
How a utility actually works
Power plants generate electricity. Transmission lines carry it long distances at high voltage. Distribution lines drop the voltage and deliver it to your house. Different companies often own different pieces.
Increasingly the generation side is shifting from coal and gas to solar and wind. The wires part is the same as it's been for 100 years.
🏭Generate
→🗼Transmit
→⚡Distribute
→📊Your meter
Step 3
Where the money comes from
From every kilowatt-hour you use, plus a fixed connection fee. The state regulator sets the rates based on the utility's costs and an allowed profit margin.
Big utilities also sell wholesale power to other utilities, and increasingly earn from renewables. NextEra, the biggest, now gets a meaningful share of revenue from its wind and solar arm.
🧑
Households + businesses pay
→
🏢
Utility keeps allowed margin
→
⚙️
Fuel + maintenance + grid
Step 4
Why this is the most bond-like stock
Regulated profits + steady demand + big dividends = behavior closer to a long-duration bond than to a tech stock. Many retirees and pension funds own utilities for income.
The downside: bond-like stocks move opposite to interest rates. When rates rise, utilities fall — they have to compete with safer bonds offering similar yields.
Roughly where the money goes
Residential
40%
Commercial
30%
Industrial
20%
Wholesale
10%
Step 5
Old utilities vs renewable-heavy ones
Traditional utilities (Duke, Southern) still rely heavily on coal and natural gas. They pay good dividends but grow slowly.
Renewable-heavy utilities (NextEra) trade at higher multiples because their growth story is bigger — but they're also more sensitive to interest rates and clean-energy policy.
🏭Traditional
vs☀️Renewables
Income vs growth
Step 6
Risks worth knowing
Interest rates — the single biggest driver of utility stock prices. Regulatory rulings that disallow cost recovery (rare but painful). Natural disasters that damage the grid (wildfires especially — PG&E's California fires bankrupted the company in 2019).
And the long-term capex burden of decarbonizing the grid: trillions of dollars of new investment needed over the next 20 years.
📈Rates
⚖️Regulation
🔥Wildfires
💸Capex load
Different conditions
How utilities performs in different scenarios
Most industries behave very differently depending on the economy. Here's how this one has historically responded to common macro situations.
High Fed rates
Gets hitBond-like stocks. When 10-year Treasuries yield 5%, a 4% utility yield looks less attractive. Plus utilities are heavily debt-financed.
2022 was one of the worst years on record for utilities as rates surged.
Low Fed rates
Holds upCheap debt funds the grid buildout. Bond-like dividend yields look attractive vs. low Treasury yields.
High inflation
MixedMixed. Regulators usually let utilities pass costs through, but with delays. Margins can compress in fast-inflation periods.
Two ways to gain exposure
A thematic ETF, or individual companies
People who want exposure to utilities usually either own a single ETF that bundles many companies together, or own a few individual stocks. They just spread the decision differently — neither approach is described here as better than the other.
See live performance
How utility companies are doing today, on the Themes page.
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